Increasing worry about market downturn - expert

Cape Town - There seems to be increasing speculation among analysts that a market downturn should be expected, Nigel Green, founder and CEO of the international financial advisory organisation deVere Group, warned on Friday.

Green said deVere - which has $10bn (about R123bn) under advice - remains vigilant about possible market corrections after a turbulent few weeks in global financial markets. The group had actually urged its clients to take precautions in case this should happen.

“Market analysts say this downturn could possibly be triggered by the events of recent weeks, including more than $3trn being wiped off China’s stock market over the past month, the Greek debt crisis reaching giddying heights, and the US Federal Reserve likely to raise interest rates this year,” explained Green.

“There is growing noise regarding concerns about China’s real economy - which is heavily indebted and slowing – despite the latest official economic data from China being largely better than expected."

As for the Greek issue, Green said, while there has been some progress in "the saga" and the International Monetary Fund (IMF) is now calling for massive debt relief, many experts are of the opinion that the measures are simply masking the more fundamental issues which will take decades to resolve.

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At the same time the full impact of the eventual US rate hike cannot be fully predicted yet, in Green's view.

“If the US raised interest rates excessively and China’s growth fell further, there is no doubt the markets would plummet and the uncertainty would potentially generate a global recession. However, it remains my belief that this is unlikely to happen," said Green.

“I believe the US will be cautious with any rate increases, that China, and indeed Japan, will stoke domestic demand and that Europe could also benefit from a low euro and, once again, achieve the growth that many EU countries desire."

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Therefore, he said, while deVere remains vigilant for clients on market corrections, he expects that, although the next few months may well be volatile, there is plenty of upside potential too.  

"The history of stock market investing proves, after all, that optimism pays," said Green.

"Investors should seek a good fund manager and ensure that they have a properly balanced portfolio, which is a vital tool to managing risk and gaining advantage, especially in times of increasing market volatility.”